Market Update & More!
Posted: Jared Jameson
As the 4th quarter of 2019 begins, we make a few comments about recent market performance and portfolio positioning. We also discuss two recent announcements from providers we use.
Where Are We?
Stock and bond markets have done well in 2019. All stock markets are up for the year with US Stock markets up double digits. Bonds are also up strongly (8%) as interest rates have fallen. Sounds like a great investing environment doesn’t it? Unfortunately, we are using a dirty little secret in measuring investment performance to bias the returns. By manipulating the start date we can tell just about any story we like. If we look at a slightly longer time period, starting in January 2018, US stocks have made no money and International stocks have lost money. This means we have now gone over a year and half with zero or negative stock market returns. Why? A challenging environment characterized by slowing international growth, increasing protectionism, and a US economy overdue for a recession. Because of these issues and mostly overvalued stock markets, especially in the US, we are positioned conservatively with a large allocation to alternatives.
Unfortunately, future returns in the bond market look even worse than the stock market despite the strong returns this year. Remember, the value of bonds moves inversely to interest rates. So strong bond returns this year are the result of falling interest rates. This means starting yields are basically at historic lows and low starting yields mean low future returns. In fact, we could see the lowest returns (before inflation) on bonds in decades over the next few years. Similar to stocks, we are positioned conservatively and emphasizing alternatives.
Investing has been challenging since the stock market rally of 2017. Some of the alternatives we use like reinsurance and managed futures provided little protection last year but have done better this year. Should the stock market decline significantly we would anticipate a positive impact on portfolio performance from our alternatives weighting. As always, we are available anytime to discuss your portfolio.
“Free” Trading Now Available
Brokerage industry commissions and other costs have been decreasing for many years because of increased competition and technological advances. In September, Interactive Brokers announced they would be offering zero commission trades for stocks and exchange traded funds. This month Charles Schwab, TD Ameritrade, E-Trade and, just recently, Fidelity followed suit. Although the stocks of these brokers were down substantially after the announcements, do not feel too sorry for the brokers as they have numerous other ways to make up the lost revenue. The most popular is the shifting of sweep cash assets in brokerage accounts to affiliated banks that pay near zero interest on balances. Last year half of Schwab’s revenue came from the practice. Basically, they borrow from you at zero and lend at higher rates. Of course, we mostly avoid this “expense” by keeping sweep cash balances to a minimum. The reduction in commissions is a positive, albeit a small one as commissions were already low at $4.95 and we trade infrequently. Commissions are not the only thing to be cut to zero recently. A few months ago, Fidelity also introduced a zero cost US stock index fund. The trend to “zero” will likely continue and we applaud it.
New Option to Earn Something on Your Business Cash Balances
Earlier this year, clients were given access to an exclusive, online high-yield savings account called Flourish Cash. Several of our clients have taken advantage of Flourish, which has enabled them to receive a higher interest rate than their bank (as high as 2.3% earlier this year, currently 1.9%) while protecting up to $2 million with FDIC insurance. In addition, clients have recently been given the ability to refer Flourish Cash to those who are not clients of WJ Interests.
Up to this point, Flourish has only been available as an individual, joint, or revocable trust account. However, the team at Flourish have been working hard to create additional features for clients, and as of October 7th, we’re pleased to announce that they have created a new offering for entity accounts. Below is the formal announcement for Flourish Institutional, as well as some additional details about the program.
Announcing Flourish Cash Institutional
We’re excited to announce that, starting today, clients of Flourish Cash can get exclusive access to the same great rate for their businesses or nonprofit organizations.
What types of organizations do you support?
Do you require any physical paperwork?
How long will it take to open an account?
If you or someone you know has a business account that typically is uninvested and sits in cash, we believe this is a tremendous resource as high yield savings accounts are rare for business entities. If this is something you believe you can take advantage of, please give us or the team at Flourish a call to help you get your account set up.